The slumping stock market has destroyed the nest eggs of millions of people in the past three years — erasing at least $678 billion in U.S. retirees' savings, according to the University of Michigan's Health and Retirement Study.
Facing sudden financial straits, many retirees have gone back to work; others have postponed retirement, hoping to rebuild their savings. The portion of Americans ages 55 to 64 who are working or looking for work surged three percentage points since January 2001, to 62.6 percent, according to the Michigan survey. That increase is "unprecedented in post-war U.S. economic history," says Andrew Eschtruth at the Center for Retirement Research at Boston College.
What's it like to take another job at an age when many contemporaries are traveling or playing golf? The Wall Street Journal visited three such would-be retirees. Their experiences offer valuable lessons in financial planning, patience and perseverance.
Today, the life of Carolyn Brady, who invested most of her savings in high-risk ventures.
As a bookkeeper for a Utah utility for more than two decades, Brady lived a modest, comfortable life, cherishing her independence. She thought that would continue when she accepted an early retirement package nearly five years ago.
Today, Brady has neither her retirement savings nor her independence, thanks to ill-timed investments in telecommunications and Internet companies that wiped out her $253,000 nest egg. At 58 years old, she is starting over, living at her sister's home in the Boise suburb of Eagle, Idaho, working at a nearby Wal-Mart for $8.80 an hour and trying to erase some $40,000 in debt. Recently a creditor seized the last $400 in her checking account, and another is seeking to garnish as much as 25 percent of the roughly $350 a week she now earns in wages.
Brady provides a striking example of how far "irrational exuberance" reached in the late 1990s, when it seemed stock prices only went up and amateur investors could win big. She also shows how devastating the collapse of the bubble economy has been, particularly for retirees.
Shy, soft-spoken and a practicing Mormon, Brady seems like the last person who would gamble on outsized returns. She lived modestly in a one-bedroom apartment in Salt Lake City. She never made more than $60,000 a year and never bought a home because, as a single woman, she said she didn't want the responsibility.
Five years ago, she reluctantly decided to take early retirement rather than move with her department to Portland, Ore. She made another fateful decision: opting for a lump-sum payment of $153,000 for her retirement instead of monthly payments of $1,800.
An avid reader of financial publications, Brady had done well picking mutual funds. Her investments before cashing out her retirement were returning 10 percent to 18 percent a year, building her savings to $100,000. That gave her confidence to try riskier investments. "I thought I could do better than the stock market," she says.
She devised what she thought was a reasonable plan: She'd pool the retirement payout with her $100,000 in savings, invest nearly all of it in risky, closely held ventures and double her money when they went public. Then she'd reinvest the money in safer, more conventional stocks and mutual funds. She figured those would return about 10 percent, or $50,000, a year, enough to support her frugal lifestyle as well as help her aging parents.
Retiring in June 1998, Brady spent months combing investment ads and prospectuses. One that piqued her interest was United States Telecommunications Inc., also known as Tel Com Plus, a Florida company offering prepaid local-phone service to customers with poor credit histories. Brady, who typically gave 20 percent of her earnings to charity, saw it as a promising investment, and a way to help poor people. She also bought into the idea, then prevalent, that the phone industry would keep soaring.
In September 1998, she made her first investment, and it was a huge one: She sank $100,000 into United States Telecommunications. She later made a second investment of $8,000 in the company.
Brady says her family — she's the third of eight children — was worried about her investments and suggested she hold off. But, she says, her independent streak kicked in: "If I want to do it, I'll do it."
Over the next six months, she invested more: $10,000 in a health care start-up planning a network of clinics offering traditional and holistic medicine; $25,000 in a dot-com with plans to offer pay-per-view family movies over the Web; and $18,000 in a long-distance phone company. She made smaller investments in a handful of other companies, then set aside $50,000 to live on until her ship came in. Ironically, Brady recalls, she felt she was being conservative by planning to merely double her money.
"I know that at my age, you don't put everything into risky investments," she says. "But I thought I was so smart, and I knew so much and I really understood it."
More than a year passed without a single IPO. The companies assured her that all was well, but by then, the tech-heavy Nasdaq Stock Market was about to peak, with the brutal technology shakeout close behind.
By mid-2000, her cash was almost gone and her calls to the companies — those that still had working numbers — went increasingly unreturned. Clinging to the faint hope that some of her investments would still pay off, she moved to Las Vegas, since Nevada, unlike Utah, has no income or capital-gains tax.
But her money and hope were gone by September 2000. She sank into a paralyzing depression. Barely able to leave her apartment, let alone find a job, she turned to her church, which paid her rent and gave her food. She lived on the church's charity for nearly two years, repaying it by working in the church's food pantry for the poor.
"I had so much pride in my capabilities and my independence," Brady recalls. "But when you lose everything, you lose everything — every aspect of what you were."
Last July, Brady accepted an offer to move in with her sister and brother-in-law, Lorraine and Ralph Ball. The next month she began working at a Wal-Mart, where she helps count money from the cash registers and get it ready for deposits.
After working for the same employer for more than two decades, it was hard to start over, she says. "As you get older, you're less flexible in learning." Still, Wal-Mart management has treated her fairly, she says, and she is grateful to rebuild her resume, since her true retirement now seems a distant horizon.
She earns less than one-third of what she made in her last year at Utah Power, yet she is stoical about her plight. She lives in a grown niece's old room, still lined with dolls, and a Raggedy Ann propped on a chair. The movies, dinners and trips she used to enjoy with friends are beyond her reach as she tries to repay debts and set aside money for dental work neglected during her impoverishment.
"These are hard things," she says, "but I'm not a quitter. If you can go to work every day, then you've made progress."